Bekker's Blog by Scott Bekker, Editor in Chief

Partners Caught Up in Microsoft Bribery Probe

Microsoft business partners are at the center of U.S. government investigations into bribery allegations in three countries -- China, Romania and Italy.

The Wall Street Journal revealed the preliminary investigations this week in an article about the inquiries by the Justice Department and the Securities and Exchange Commission. The article is based on unnamed sources the paper says are "familiar with the probe." The investigations involve the Foreign Corrupt Practices Act, a 1977 law prohibiting bribes to foreign government by employees or agents of U.S. companies.

Microsoft confirmed the existence of the investigations in a blog entry posted Tuesday by John Frank, Microsoft vice president and deputy general counsel.

"Today, the Wall Street Journal reported that the U.S. government is reviewing allegations that Microsoft business partners in three countries may have engaged in illegal activity, and if they did, whether Microsoft played any role in these alleged incidents," Frank wrote.

Frank's blog noted the matters raised by the paper are "important" and should be reviewed by Microsoft and the government, but cautioned, "It is also important to remember that it is not unusual for such reviews to find that an allegation was without merit." He suggested Microsoft would cooperate with government investigators.

The picture painted by the Journal's sources gives Microsoft a controlling role in both the China and Italy cases, with business partners as pawns.

According to the paper's account, the Chinese case involved what sounded like not a channel partner but a Microsoft contractor. "The tipster, who worked to land potential new business, alleged that an executive of Microsoft's China subsidiary instructed the tipster to offer kickbacks to Chinese officials in return for signing off on software contracts," the paper reported, quoting unnamed sources familiar with the matter. The tipster's contract ended in 2008. According to the newspaper, Microsoft hired an outside law firm to investigate that allegation. The 10-month internal investigation concluded in 2010 and found no evidence of wrongdoing, according to the paper.

In Italy, the case involves consultants specializing in customer loyalty programs. The allegations that U.S. officials are investigating in Italy involve consultants giving gifts and trips on behalf of Microsoft to Italian officials to win government contracts, the Journal said.

The newspaper's description of the Romanian allegations is more ambiguous about Microsoft's possible role. According to the sources quoted by the newspaper, resellers offered bribes to win software deals with Romania's Ministry of Communications.